KPMG to Restructure Audit Business in U.K.

The Big Four firm says it wants to "restore trust in audit" but a U.K. regulator indicates the changes don't go far enough.
Matthew HellerMay 17, 2019
KPMG to Restructure Audit Business in U.K.

KPMG has announced plans to restructure its U.K. auditing business but a regulator that has urged a broad overhaul of the Big Four accounting firms indicated the changes do not go far enough.

The Competition and Markets Authority (CMA) recommended last month that the Big Four separate their audit and consulting services following a number of major scandals including the collapse of government contractor Carillion, which had been audited by KPMG for 19 years.

The restructuring announced this week by KPMG would create a new audit executive committee and reshape its executive leadership team. According to the firm, the changes deliver on many of the recommendations of the CMA and a parliamentary committee that has called for a “full structural breakup” of the Big Four.

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‘We’re serious about making changes to restore trust in audit,” said Bill Michael, chairman and senior partner at KPMG in the U.K. “We understand concerns that the profession’s operating models have become too opaque and we are taking action to tackle these.”

He added that the sole aim of management was to “drive audit quality, via strong leadership, good governance, rigorous controls, independent decision-making, and separate performance management from the rest of the firm.”

But a CMA spokeswoman said the changes “do not address all of our concerns.”

“The recommendations we made to government are designed to tackle deep-seated and serious competition concerns in the audit market, where conflicts of interest persist and the U.K. is relying on four firms to review its biggest companies,” she said.

KPMG was also recently fined 5 million British pounds for failings in its 2009 audit of the Co-operative Bank and 6 million pounds over its audit of insurer Equity Syndicate Management more than 10 years ago. The firm said the new audit executive committee will oversee the performance and risks of its audit business.

Richard Murphy, a professor at City University and a tax justice campaigner, shared the CMA’s concerns. The Big Four are addressing audit independence “the wrong way,” he told Accountancy Age. “There is no way that any number of so-called Chinese walls will restore any credibility to the Big Four on this issue.”